Just Eat (LSE: JE) is falling today after the company’s owners disposed of a large chunk of stock. The group of shareholders — which played a part in bringing Just Eat to market — announced yesterday, after the market closed, that they were planning to sell around 44m shares in the takeaway company, that’s around 7.7% of Just Eat’s total issued share capital.
The offer raised around £139m in total for the sellers, SM Trust, Vitruvian Partners LLP and some Index Ventures funds. These partners are now subject to a 90-day lock-up, during which they cannot sell any more Just Eat stock.
However, what’s really concerning is the fact that this is the second significant sale by Just Eat’s majority shareholders in the space of a month. Back during the second week of November, early investors Greylock and Redpoint, sold 12.5m shares for 293p each. At the time, this disposal was seen as a good thing, it cleared away an overhang of stock to be sold.
But now other significant stakeholders have joined in the selling, it seems as if insiders have decided that it could be time to bail out.
Rocky ride
Just Eat’s has had a rocky ride since floating in April at 260p. For much of the year the company’s shares have traded below this IPO price, they only started to stage a recovery during September, finally breaking above the key 300p level. And before yesterday’s placing was announced, Just Eat’s shares closed at 340p, a full 80p, or 31% above the company’s IPO price.
After taking this into account and factoring in recent stakeholder selling, it would appear as if the institutions doing the selling believe that the company is fully valued at present levels. At least for the time being anyway.
Valuation troubling
Just Eat’s eye-watering valuation could be the reason behind recent selling. At present levels the group trades at a lofty forward P/E of 103, which is slightly lower than the company’s valuation at close of trading yesterday. Just Eat’s forward P/E was 114 at close yesterday.
Still, for growth investors this valuation can be justified. The company’s earnings per share are expected to expand by 327% this year, which means that the shares offer growth at a reasonable price as they trade at a PEG ratio of 0.3 Next year, Just Eat’s earnings are expected to jump a further 73%. Some City analysts have predicted that the company can grow earnings at a compounded annual rate of 69% between now and 2016 — that’s growth worth paying for.
Nevertheless, it remains to be seen if the company can achieve these lofty growth rates.
